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* Sterling strong near 4-1/2 year high vs dollar
* Trading activity winding down ahead of Easter holidays
* Yellen stresses need for interest rates to stay low
By Anirban Nag
LONDON, April 17 The dollar fell against a basket of currencies on Thursday after Federal Reserve chief Janet Yellen reiterated an accommodative monetary policy stance in comments which gave the euro and the yen a lift.
The dollar's weakness lifted the pound to its highest level against the U.S. currency since late 2009 as investors continued to price in expectations for a UK rate hike in the first quarter of next year after strong jobs and wages growth data on Wednesday.
The sterling trade-weighted index hit a 5-1/2 year high .
In her second public speech as Federal Reserve Chair, Yellen stressed the need for accommodative policy, citing persistently low inflation and economic slack.
Her dovish remarks offset data suggesting that the U.S. economy was regaining momentum. U.S. industrial production rose at a faster-than-expected clip in March, while the Fed's Beige Book report showed economic activity picked up in recent weeks.
The dollar index was down 0.2 percent at 79.670, dragged down by lower U.S. yields, while the euro was 0.2 percent stronger at $1.3840.
Sterling was up by a similar margin at $1.6830, having hit its highest level since late 2009 in Asian trade at $1.6838.
The dollar down 0.2 percent at 102.03 yen.
"Yellen's comments have hurt the dollar as she has indicated that the Fed is in no hurry to raise rates," said Alvin Tan, currency strategist at Societe Generale.
"With U.S. yields at the bottom of its recent range we expect the dollar to remain soft. Only when yields pick up and the market focuses on rate hikes by the Fed will the dollar start to rally. That we expect sometime in the third quarter of this year."
Volumes are expected to fizzle out later in the day with Easter holidays looming. Markets in Tokyo will be open but banks in London, which has the biggest share of daily turnover, will be closed on Friday and Monday.
Nevertheless, according to data from Reuters Matching, trading in dollar/yen was well above its one-month average.
Some investors apparently used comments by Bank of Japan Governor Haruhiko Kuroda as an excuse to buy back the yen, even though his remarks contained nothing new, Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank said.
The central bank chief said the BOJ would adjust monetary policy when needed but said nothing to indicate that more easing steps would be forthcoming anytime soon.
The euro was flat against the yen at 141.20 but edged up against the dollar with some of its gains linked to demand for an Italian bond from overseas investors, traders said. (Additional reporting by Lisa Twaronite; Editing by Susan Fenton)